Question 34 of 35intermediate🔧 ApplyNumerical5 marks

The following balances appeared in the trial balance of M/s Kapil Traders as on March 31, 2017 Sundry debtors: 30,500; Bad debts: 500; Provision for doubtful debts: 2,000. The partners of the firm agreed to records the following adjustments in the books of the Firm: Further bad debts ₹300. Maintain provision for bad debts 10%. Show the following adjustments in the bad debts account, provision account, debtors account, profit and loss account and balance sheet.

Correct Answer

1. Bad Debts Account Dr. Side: To Balance b/d (Given) ₹500; To Debtors (Further Bad Debts) ₹300. Cr. Side: By Profit & Loss A/c (Transfer) ₹800.

2. Provision for Doubtful Debts Account Dr. Side: To Balance c/d (New Provision) ₹3,020. Cr. Side: By Balance b/d (Old Provision) ₹2,000; By Profit & Loss A/c (Balancing Figure) ₹1,020.

3. Debtors Account Dr. Side: To Balance b/d ₹30,500. Cr. Side: By Bad Debts (Further) ₹300; By Balance c/d ₹30,200.

4. Profit and Loss Account (Excerpt) Expenditures: Bad Debts: ₹500 Further Bad Debts: ₹300 New Provision for Bad Debts: ₹3,020 Less: Credit for Old Provision: ₹(2,000) Net Debit to Profit and Loss: ₹1,820

5. Balance Sheet (Excerpt) as on March 31, 2017 Assets: Sundry Debtors: ₹30,500 Less: Further Bad Debts: (₹300) Less: New Provision for Bad Debts @ 10%: (₹3,020) Debtors (Net): ₹27,180

Exercise: Numerical Questions | Q: 14 | (Page 64)
For More Understanding

Explanation

The question requires adjusting accounts for bad debts and provisions. First, further bad debts (₹300) are deducted from Sundry Debtors (₹30,500 - ₹300 = ₹30,200). The new provision is calculated at 10% on this adjusted debtor balance (₹30,200 * 10% = ₹3,020). The Profit and Loss Account is debited with total bad debts (Old ₹500 + Further ₹300 = ₹800) and the new provision (₹3,020), then credited with the old provision (₹2,000), resulting in a net debit of ₹1,820. The Balance Sheet shows Debtors at their net realizable value.

Solution Steps

  1. Step 1: Calculate Total Bad Debts. Old Bad Debts (₹500) + Further Bad Debts (₹300) = ₹800.

  2. Step 2: Calculate New Debtors balance for Provision. Sundry Debtors (₹30,500) - Further Bad Debts (₹300) = ₹30,200.

  3. Step 3: Calculate New Provision. 10% of New Debtors (₹30,200) = ₹3,020.

  4. Step 4: Calculate Net Impact on Profit & Loss. (Total Bad Debts ₹800 + New Provision ₹3,020) - Old Provision ₹2,000 = ₹1,820 (Debit).

  5. Step 5: Calculate Balance Sheet Net Debtors. Debtors (₹30,500) - Further Bad Debts (₹300) - New Provision (₹3,020) = ₹27,180.

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